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Facts
The assessee, a Non-Resident company, engaged in contract works in India and computed income using percentage completion methods, reporting a loss. The AO rejected the books of account under Section 145 and estimated profit at 8% of turnover due to discrepancies. The CIT(A) called for a remand report and concluded the assessee's accounts were accurate, directing the AO to recompute profits.
Held
The Tribunal held that the CIT(A) correctly found no valid case for the AO to invoke Section 145 and disapproved the estimation of business income at 8% of turnover. The Assessing Officer was directed to re-compute the business profits by allowing the losses shown in the assessee's books.
Key Issues
Whether the CIT(A) was justified in directing the AO to accept provisions for expenses, and whether the rejection of books of account under Section 145 and estimation of profit was valid.
Sections Cited
143(3), 144C(13), 145, AS-29
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M :
Aforesaid appeal filed by the Revenue and Cross Objection by the assessee for Assessment Year (AY) 2014-15 arises out of the order of Learned Commissioner of Income Tax (Appeals)-16, Chennai [hereinafter “CIT(A)”] dated 31.01.2024 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (hereinafter “the Act”) on 05.05.2017.
There is a delay of 11 days in filing C.O No.80/Chny/2024 by the assessee. The assessee has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the C.O and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit.
Hence, the delay is hereby condoned.
The grounds of appeal raised by the Revenue are as under:
“Whether on the facts and circumstances of the case, the Id. CIT(A) was justified in directing the AO to accept the provisions made for expenses when the Ld. CIT(A) itself has noted that ICDS III does not provide for the recognition of any expected loss as per the assessee, which validate the AO's stand. Admittedly the assessee has nowhere substantiated as to how the provisions are meeting the criteria as per AS-29 issued by the ICAI, which states as to when a Provision should be recognised.”
3.1 The additional ground raised by the Revenue is as under: “Without prejudice to the above, even if the provision for expenses are held to be allowed, the break-up, nature and the applicability of TDS or otherwise on the said expenses were not made available to the Assessing Officer.”
The assessee has filed its return of income by admitting loss of Rs. 24,73,96,132/-.The assessee-company is a Non-Resident company and established a project office in India on 01.09.2009.
The assessee is engaged in the contract works and has executed three projects namely TW01, TW02 & TW04, and computed income as
per percentage completion methods. The A.O during the course of assessment proceeding found discrepancy in the project progress and other deficiencies, and therefore rejected the books of account u/s. 145 of the Act and estimated the profit @ 8% of the turnover.
Aggrieved, the assessee filed an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) after calling for remand report, concluded that assessee’s accounts were accurate, with no non compliance with the Accounting Standards prescribed by the ICAI and held that there was no valid case for the A.O to invoke the provisions of Section 145 of the Act. Aggrieved the order of Ld. CIT(A), now the Revenue is in appeal before us.
The Ld. Departmental Representative (DR), has argued that the A.O has clearly pointed out that discrepancy in the books of accounts and accounting of profit for the purpose of computation of income and therefore, rightly rejected and estimated profit @8% of the gross turnover.
The Ld. Authorized Representative (A.R) of the assessee, on the other hand, submitted the Ld. CIT(A) has rightly allowed the provision for expenses claimed by the assessee and upheld the computation of income returned as per books of account after considering the facts of the case and provision of law. The Ld. AR supported the order of Ld. CIT(A).
We have heard the rival submissions, and perused the materials available on record. The A.O has rejected the books of accounts and estimated the profit @ 8% of the turnover of Rs 58,70,37,383/-. The A.O has rejected the books of accounts citing the discrepancy in the project progress for computation of income as percentage completion method , provisions made for expenses, claim of forex loss , and the allocation of employees’ salaries between NCC India and the assessee books. The Ld. CIT(A) has called for remand report under Rule 46A of the Income Tax Rules, 1962 and after examining the accounts has held as under:
“4.5.10. After a meticulous examination of the facts, submissions, and the remand report submitted by the Assessing Officer (AO), it has been conclusively established that the appellant's accounts were found to be accurate, with no noncompliance with the Accounting Standards (AS) prescribed by the Institute of Chartered Accountants of India (ICAI). Discrepancies pointed out by the AO were subjected to thorough verification and reconciliation during the remand report proceedings.
4.5.11 Further, it is crucial to acknowledge that the discrepancies, duly verified and explained by the appellant, were accepted by the Assessing Officer during the remand report proceedings. Building on legal precedents, it underscores the significance of respecting the taxpayer's chosen method of accounting, especially when consistently followed without evidence of inherent defects in the system. The appellant contends that the rejection of books of account lacks legal merit and should be reconsidered in light of these fundamental principles. Consequently, there was no valid case before the Assessing Officer for invoking the provisions of Section 145 of the Income Tax Act. Hence, the rejection of the books of account by the Assessing Officer was disapproved. Additionally, the estimation of business income at 8% of turnover was deemed inappropriate in light of the facts and accounting standards, which were substantiated by various case laws. Therefore, the Assessing Officer is directed to re-compute the business profits by allowing the losses provided by the assessee in its books.”
We find that assessee has given reasons for claiming provisions as work done but bill not received and anticipated cost based on POCM . Ld CIT(A) has found the assessee’s account accurate after examining facts and remand report . The Ld CIT(A) has also examined the factor sheet and held that estimation of profit @8% is inappropriate. We find no infirmity in the order of Ld. CIT(A) and therefore, grounds of appeal filed by the Revenue is hereby dismissed.
C.O No.80/Chny/2024: 8. So far as the Cross Objection filed by the assessee is concerned, the CO was filed in support of the appellate order passed by the Ld. CIT(A). Since, the main appeal of the Revenue has already been decided, the cross objection filed by the assessee becomes infructuous and is dismissed accordingly
In the result, the appeal filed by the Revenue is dismissed and the C.O filed by the assessee is also dismissed. Order pronounced on 12th March, 2025.